Tuesday, January 31, 2012 10:03 pm

Almost 20 years ago, Daniel Patrick Moynihan, then the senior senator from New York and then and now one of the smarter congresscritters ever to serve, published an essay in the journal American Scholar. In it, drawing on the work of Emile Durkheim and Kai Erikson, he suggests that social control is aimed not necessarily at eliminating things like crime, just keeping it within certain boundaries:

In both authors, Durkheim and Erikson, there is an undertone that suggests that, with deviancy, as with most social goods, there is the continuing problem of demand exceeding supply. Durkheim invites us to imagine a society of saints, a perfect cloister of exemplary individuals. Crimes, properly so called, will there be unknown; but faults which appear venial to the layman will create there the same scandal that the ordinary offense does in ordinary consciousness. If, then, this society has the power to judge and punish, it will define these acts as criminal and will treat them as such.

Recall Durkheim’s comment that there need be no cause for congratulations should the amount of crime drop “too noticeably below the normal level. It would not appear that Durkheim anywhere contemplates the possibility of too much crime. Clearly his theory would have required him to deplore such a development, but the possibility seems never to have occurred to him.

Erikson, writing much later in the twentieth century, contemplates both possibilities. “Deviant persons can be said to supply needed services to society.” There is no doubt a tendency for the supply of any needed thing to run short. But he is consistent. There can, he believes, be too much of a good thing. Hence “the number of deviant offenders a community can afford to recognize is likely to remain stable over time.” [Moynihan’s emphasis — Lex]

Social scientists are said to he on the lookout for poor fellows getting a bum rap. But here is a theory that clearly implies that there are circumstances in which society will choose not to notice behavior that would be otherwise controlled, or disapproved, or even punished.

It appears to me that this is in fact what we in the United States have been doing of late. I proffer the thesis that, over the past generation, since the time Erikson wrote, the amount of deviant behavior in American society has increased beyond the levels the community can “afford to recognize” and that, accordingly, we have been re-defining deviancy so as to exempt much conduct previously stigmatized, and also quietly raising the “normal” level in categories where behavior is now abnormal by any earlier standard.

From such “exempt[ing] much conduct previously stigmatized” came the title of Moynihan’s essay, “Defining Deviancy Down.”

Now, keep in mind that at the time Moynihan wrote this, violent crime had been rising steadily for 40 years. Almost 20 years later, it has fallen off dramatically, and the reasons may have less to do with any sociological factor than crime-and-punishment types want to believe. (Doctors who wrote in the Journal of the American Medical Association in 1992 that violent crime was a “public health emergency” were more right than they knew.) Certainly, it has nothing to do with whether we still consider violent crime to be, well, violent crime. We unquestionably do, even if some other behaviors widely considered deviant a couple of generations ago (e.g., homosexuality) no longer are so widely considered.

But this phenomenon, as Erikson predicted, has played out in other areas, most notably in this election year what is considered sane, rational political discourse. Consider, if you will, what Gingrich said this past weekend about stem-cell research: He called such research “the use of science to desensitize society over the killing of babies.”

Did anyone blink? Did anyone in a position of responsibility in the Republican establishment suggest, publicly or privately, to Gingrich that if he was going to suggest that scientists were in the business of whipping up some baby-killing fervor as an end in itself, he might want to offer some, you know, evidence? If so, there’s been no sign of it.

You could argue that stem-cell research represents hubristic overreach on the part of the scientists. You could argue that those scientists are fundamentally amoral and that they are only in it for the pot of gold that waits for whoever finds a way to use stem cells to cure some horrendous disease. You could argue that you have come to oppose such research after long and prayerful consideration once you were no longer governor of a state that depends so vitally on bio-tech dollars and have only to give long and prayerful consideration to the question, “How will this play among the rubes in Florida?” (That would be Willard Romney’s position.) You could argue that you are opposed to it simply because every fertilized embryo is sacred. Period. (Hi, Rick Santorum!) You could argue any one of those. I would not agree with you, but I would not feel compelled to call the Nervous Hospital and have you picked up, either.

But consider, for a moment, what Gingrich said. He accused these scientists not of hubris or cupidity, and he did not accuse them of idly casting aside the philosophical considerations of their work. He is saying that these scientists, and their work, are deliberately engaged in a campaign to make the “killing of babies” easier in American society, that their grand design is not fame and fortune, nor ridding the world of terrible illness, but, rather, that they are in service to a dark agenda to turn America into some kind of futuristic child-killing dystopia. I’m sorry, but this is just nuts. I mean, I’ve heard the argument that climate scientists have invented the “hoax” of global climate change in order to get rich, but that’s a nursery rhyme compared to what Gingrich is dealing out here.

Tell me again that Ron Paul is the crackpot in this race.

(Full disclosure: Both my brothers have Type 1 diabetes, and if stem-cell research offers them the hope of a cure, which it might, then I support it. For that matter, if scooping Gingrich’s guts out with a rusty spoon offered them the hope of a cure, I would at least strongly consider it.)

I’ve argued before that the GOP primary voting base responds most strongly to hippie-punching, and that people like Newt Gingrich succeed by punching hippies. But cui bono? Moynihan had a suspicion on that, too:

Our second, or opportunistic mode of redefinition, reveals at most a nominal intent to do good. The true object is to do well, a long-established motivation among mortals. In this pattern, a growth in deviancy makes possible a transfer of resources, including prestige, to those who control the deviant population. This control would be jeopardized if any serious effort were made to reduce the deviancy in question. This leads to assorted strategies for re-defining the behavior in question as not all that deviant, really.

Newt Gingrich has made it very clear that he wants to dismantle the New Deal and Great Society, and in this he is not alone in the GOP. Indeed, some of the party’s wealthiest, most powerful backers — corporatists, if not fascists, and people whose beliefs are inimical to American ideals — stand to get even wealthier and thus more powerful if Gingrich or anyone like him gains political power.

Does it matter that these candidates defy the laws of nature by pushing creationism, casting unfounded doubt on a proven means of reducing disease and dismissing climate science that might be essential to the survival of the species? Does it matter that these candidates make the grossest of moral accusations without evidence or accountability? Does it matter that these candidates’ proposals are plainly and simply unconstitutional as well as economic and social suicide?

It does not.

And so they define lunacy down. They hear the batshit and do not think, “How can I make this stop?” but, rather, “How can I make this work for me?” And so the nation bungee jumps into the Canyon of Crazy without a cord.

Moynihan, speaking in the context of violent crime and single-parent households (statistically associated with many social ills), concluded:

As noted earlier, Durkheim states that there is “nothing desirable” about pain. … Pain, even so, is an indispensable warning signal. But societies under stress, much like individuals, will turn to pain killers of various kinds that end up concealing real damage. There is surely nothing desirable about this. If our analysis wins general acceptance, if, for example, more of us came to share Judge [Edwin] Torres’s genuine alarm at “the trivialization of the lunatic crime rate” in his city (and mine) [New York — Lex], we might surprise ourselves how well we respond to the manifest decline of the American civic order. Might.

One large subset of the people who would govern us has taken leave of its senses. Our “liberal” news media treats this phenomenon as unremarkable. And those Americans who haven’t had to sell their TVs and gaming sets because their unemployment insurance has run out are, by and large, taking comfort in “Call of Duty” and “NCIS” instead of doing something about it.

Federal officials looking for an estimated $1.2 billion missing from customers of MF Global Holdings Ltd. feel more and more that a lot of it may never be located, according to a report citing sources familiar with the probe.

What’s been learned so far suggests that a good deal of the money may have “vaporized” because of scrambling in trading in the week before MF Global filed for bankruptcy protection Oct. 31, the Wall Street Journal reported, citing “a person close to the investigation.”

Many now think specific MF Global employees used money from a customer account meant to be walled off and used it to cover collateral requirements or to unfreeze assets of banks and others as they became more worried about how exposed they were to MF Global, the Journal reported.

The probe also is looking at other possibilities that have taken on weight, including the chance that the firm lost a lot in investments that used customer money, according to the report.

No the money hasn’t disappeared, they’re just making clear that whoever took it is unlikely to relinquish it. Whoever took it is more important than the people it was taken from. … And a new standard will be established: the right people are free to steal $1.2 billion.

“It’s symptomatic of the poor record keeping that was rife throughout the early stages of the reconstruction effort,” Bowen, who has conducted three other major audits into the original pot of roughly $21 billion in Iraqi funds the U.S. managed in 2003 and 2004, said.

After all, that money dates to 2004 and Dimon’s service on the FBRNY Board didn’t begin until January 2007. (Though I will note that Jamie Dimon and Iraq’s money overlapped at the FBRNY for a year.) Moreover, it was DOD’s responsibility to keep track of the money, not the FBRNY or Jamie DImon.

Still, I can’t help but notice that the announcement that we’ve lost almost $3 billion of Iraqi’s money (on top of the more than $100 million in cash that managed to walk out of Saddam’s former palace) came within a day of the time some are declaring the missing MF Global $1.2 billion has “vaporized.”

[snip]

That money does seem to have been lost in the immediate vicinity of Dimon’s JP Morgan.

As the week progressed, MF Global executives came to believe that JPMorgan Chase & Co., one of MF Global’s primary bankers and a middleman moving that cash, was dragging its feet in forwarding the funds.

Corzine phoned Barry Zubrow, then JPMorgan’s chief risk officer, to question the slow payments. Corzine also called William Dudley, president of the Federal Reserve Bank of New York, to update him on MF Global’s status and told him that payments were slow to arrive from JPMorgan and others.

[snip]

JPMorgan was able to slow the delivery of funds, worsening MF Global’s distress. As a result, they note, hundreds of millions of dollars of MF Global money may be still stuck in accounts at JPMorgan.

So while I’m not suggesting Jamie Dimon bears any personal liability for these missing billions (or those of Lehman or Bear Stearns), I will note that Dimon seems to have the 21st Century equivalent of the Midas Touch: Rather than turning things into gold when he touches them, when billions get within reach of Jamie Dimon, they seem to vaporize.

For the record, I have no earthly idea where either the MF Global money or the Iraq money went, but I’m confident that it didn’t go wherever it went accidentally. Would it be irresponsible to speculate? It would be irresponsible not to.

Like this:

Friday, January 27, 2012 8:32 pm

Economist Jared Bernstein of the Center for Budget and Policy Priorities explains:

One reason multi-millionaire investors like Gov. Romney face 15% tax rates is because they engage in corporate activities but avoid corporate taxes. They do so by taking advantage of policy changes that have made it easier to pass capital gains through the corporation to their personal income, where, in the case of PE managers, they tap a double loophole. First, capital gains are taxed at less than half the rate of normal income, and second, even though these gains are really earnings for the fund managers, they get to claim them as capital gains (this is the notorious “carried interest” loophole).

Although businesses operating through C corporations [standard corporations] are subject to corporate taxes, the capital income of non-incorporated businesses is “passed through” to the business owners. These owners benefit from the same tax deductions and credits as do corporations, but are taxed only at the individual level. Over the past half century, and particularly during the 1980s and 1990s, states and the federal government significantly expanded the legal benefits of pass-through entities. These changes have made it easier for firms to operate through such legal structures as S corporations, partnerships, limited liability companies, and sole proprietorships — while also benefiting from limited liability and other provisions that formerly were available only to corporations.

As you see in the figure, the share of receipts passed through to non-incorporated business has almost tripled since 1980s, up from 13% to 35%.

Source: IRS, (h/t: BH)

Moreover, it’s a good example of what happens when you open up these loopholes. The elasiticities attached to changes in tax rates are wildly exaggerated by conservatives and trickle downers who argue that the slightest increase will end the economy while any decrease will trigger boom times. The evidence belies their view in terms of jobs, investments, and growth.

But when it comes to sheltering your income (e.g., passing through corporate income to the personal side to tap loopholes like carried interest), how you structure your investment vehicles, your preference for debt over equity financing (debt financing is very much favored by the tax code)—there you see very significant responses.

The question is, as posed above, does any of this add value—real value—to the economy beyond further enriching the rich? It’s not a simple question and the answer is probably less obvious than it sounds. There are unquestionably examples of PE firms that have taken over companies and discovered new efficiencies.

But neither is it a coincidence that the ascendency of this type of economic activity and the policies that support it have occurred during a period of sharply increasing inequality, weak job creation, and stagnant incomes for the middle class.

And Republicans think we need more of this, not less.

And don’t whine at me about “double taxation” (corporations paying income taxes, then investors having to pay taxes on dividends). If there weren’t huge benefits associated with being incorporated, not the least of them being the right to buy politicians without having to go to prison if what you do kills a lot of people, then businesses wouldn’t incorporate.

What’s most ironically amusing about all this, though, is that underlying a lot of the attacks on Newt is the complaint that he’s not conservative enough. Weirdly enough, there’s some truth to this by modern GOP standards. Newt’s tone and temperament are perfectly suited to the no-compromise-no-surrender spirit of the tea party-ized GOP, which is why he’s so appealing to the base during debates. But the truth is that for all his bluster, Newt was perfectly willing to do deals during his time as Speaker. He likes to think of himself as a world-historical figure, and that means getting world-historical things done. Simple obstruction is not really his MO. That makes him doubly unreliable, since obstruction is the sine qua non of movement conservatism these days.

The GOP Establishment can read polls as well as anyone. And they’re in damage-control mode: They know they’ve got a good thing going from a financial standpoint (free money for Bank of America, et al., from the Fed just for starters), and they know they’ll have to at least appear to give a little to keep the gravy train running. So you have Bob Dole — a SOB in his day but fondly remembered by Democrats now compared with today’s GOP — coming out and trashing Newt.

But Newt, although he almost certainly wants the same thing, is willing to tell the GOP primary voting base otherwise. In South Carolina, they wanted to hear that badly enough to believe him. It’ll be interesting to see whether Florida GOP primary voters respond likewise.

At the same time, it is worth noting that the economic policies of austerity enacted in Ireland have not helped that nation’s economy, which just a few years ago was the envy of the world. Indeed, they have had precisely the opposite effect. And yet all the Responsible People here in the U.S. want us to do the same thing Ireland did.

I pulled my 2009 taxes out of my filing cabinet this morning — I think 2010 is still at my office somewhere — just to see how my wife and I stacked up against Mittens and his wife. I am an equity partner in my law firm, which means I derive income based on firm profits and that I am treated as self-employed under the law, meaning I pay both the employer and employee sides of the FICA tax. My income can fluctuate quite a bit from year to year as profits ebb and flow, but I make a pretty nice living by any reasonable standard after 25 years of plying my craft. My wife is a salaried professional who makes a six figure income in her own right, so in terms of family income we hover right around the top 1-2% depending on the year. (Typical of most people I know in this demographic, we have virtually no investment income to speak of — we fully fund our retirement accounts, pay our big mortgage and tuition bills, take a nice vacation or two, and try to save a bit, but we do not have capital gains or interest income worthy of mention.)

In 2009, which was a very good year for me (although not in quite up to Mitt’s speaking fee income), we paid an overall federal tax rate of 30.3%. (We get hit increasingly by the Alternative Minimum Tax, which wipes out a good bit of our mortgage interest deduction.) We paid an additional 7% effective tax rate to the District of Columbia.

I never complain about my taxes. I feel incredibly fortunate to be where I am in life and would not object to paying a bit more for the greater good. (And I can assure people that marginal tax rates have no impact at all on our business decisions in terms of trying to make money.) But when I look at the tax rate paid by this “unemployed” rich kid I see red. The meager taxes paid on capital gains and the gaping tax loophole that allows ordinary income for these investment management types to be treated as “carried interest” are completely outrageous.

The point isn’t that we’re jealous of wealth or high income. The point is that the wealthy and those with high incomes have rigged the system to be even more favorable to them than to us.

The Times Almighty wonders out loud whether it ought to point out when lying presidential candidates are, you know, lying. And NBC’s White House correspondent, Chuck Todd, worries that the biggest problem in the presidential campaign might be … wait for it … Stephen Colbert.